Endowment sound despite slight loss

In a difficult year for investors nationwide, the value of Yale’s endowment fell slightly despite a small investment return, Yale President Richard Levin said Wednesday.

The 0.7 percent investment return was not enough to offset spending from the endowment, and the total value fell from $10.7 billion to $10.5 billion. In the 2001-2002 fiscal year, Yale spent approximately $401 million from its endowment.

The return of less than 1 percent still placed Yale ahead of Harvard and the University of Pennsylvania over the same time period.

In the current fiscal year, Yale is expected to spend approximately $471 million of endowment money. That figure — a 16 percent increase from last year — is about 4.5 percent of this year’s operating budget of $1.54 billion. The University’s target spending rate is 5 percent.

Despite a shaky market two years ago, the Yale endowment managed to post a 9 percent increase in returns during the 2000-2001 fiscal year, and the endowment grew from $10.1 billion to $10.7 billion in that year. These figures are a significant decline from the nearly unprecedented 41 percent increase Yale reported during the market boom of the 1999-2000 fiscal year.

But financial markets have tumbled in the last year.ÊBetween June 30, 2001 and June 30, 2002 — the fiscal year covered by the new endowment figures — the Dow Jones industrial average fell by 12 percent and the NASDAQ index fell by 32 percent.

Given the poor performance of the market, Levin said that there is no cause for alarm.

While Yale’s returns were positive, most universities are expected to report losses for the past fiscal year, according to Yale’s investment officials.

“Our sense is that only a handful of schools will have positive returns,” Levin said.

Harvard reported a 0.5 percent loss in investment values over the same period of time. Its endowment — the only one in the nation larger than Yale’s — fell from $18.3 billion to $17.5 billion.

This year is the third in a row that Yale’s endowment has outperformed Harvard’s, and the gap between the two narrowed slightly this year.

The University of Pennsylvania reported a 0.1 percent endowment increase in the 2001-2002 fiscal year, bringing the figure to approximately $3.4 billion.

In the last decade, the value of the Yale endowment has more than quadrupled under Chief Investment Officer David Swensen. Under his lead, the University investment team has achived an annualized 16.9 percent return. The endowment now provides 31 percent of the University’s operating costs — more than twice the percentage it provided 10 years ago.

“I think that it is testimony to the extraordinary ability of David Swensen and his colleagues to manage the endowments,” Provost Alison Richard said.

Although this year’s yield represents a marked decline, Levin said it was expected given the turbulent economy. The positive investment return, though modest, was an encouraging sign, he said.

“We kept our heads above water,” he said.

With more economic uncertainty ahead, Richard said it was difficult to predict the future performance of the Yale endowment.

“Who knows what the future will hold?” she said. “I’m an optimist. I’m hoping for the best while preparing for the worst. We certainly want to make sure we’re not caught unprepared and that we have the capacity to manage the University’s assets through whatever lies ahead.”

–Staff reporter Martha Fulford contributed to this report.

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